The determinants of bank lending to developing countries have been investigated in the existing a... more The determinants of bank lending to developing countries have been investigated in the existing academic literature within the risk-return framework, but the conclusions of earlier research have often been only partial or even contradictory. The analysis of a large sample of individual syndicated credit facilities allows the application of the risk-return framework to study the determinants of syndicated lending to developing countries in a more systematic manner. That is the approach taken in this chapter.
Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instrumen... more Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instruments combining features of relationship lending and publicly traded debt. They allow the sharing of credit risk between various financial institutions without the disclosure and marketing burden that bond issuers face. Syndicated credits are a very significant source of international financing, with signings of international syndicated loan facilities accounting for no less than a third of all international financing, including bond, commercial paper and equity issues (Figure 2.1). This chapter describes the functioning of this increasingly global market, focusing on participants, pricing mechanisms, primary origination and secondary trading.
Excessive borrowing by companies, households or governments lies at the root of almost every econ... more Excessive borrowing by companies, households or governments lies at the root of almost every economic crisis of the past two decades, from Mexico to Japan and from East Asia to Russia. Following the financial crises in Mexico (1995) and South-East Asia (1997, 1998) the determinants of bond and loan financing to developing countries and the pricing of these instruments have been analysed widely in the academic literature (see, for instance, Hernandez and Rudolph, 1995; Eichengreen and Mody, 1997, 1998; Kamin and von Kleist, 1999; Chowdhry and Goyal, 2000). As stressed by Hale (2005), bonds and loans compete in the market for emerging market finance and it is important to gauge the relative importance of each instrument for planning purposes by lenders and borrowers alike. Indeed, while banks can cancel loans relatively easily — posing more potential liquidity threats to emerging market borrowers — bonds are harder to restructure, not least because of the dispersion of the bondholders.
This chapter extends the work of Altunbas, Chakravarty and Kara (2004) and examines the effect of... more This chapter extends the work of Altunbas, Chakravarty and Kara (2004) and examines the effect of the IMF’s imprimatur (seal of approval) on the cost of borrowing in the international syndicated loan markets between 1993 and 2001. It appears that the IMF-assisted countries paid higher spreads over LIBOR for short-term loans and had obtained fewer long-term loan contracts compared to their non-IMF peers for the financing of similar purpose projects. This may indicate a lack of confidence on the part of creditors that IMF prescriptions would have the desired effect in the long run on the economies of the client nations. Also, the pricing of syndicated loans for projects in these countries is inversely related to the level of short-term debt, signalling that creditors perhaps expect a bailout if a financial crisis occurs in the assisted nations. The academic critique of IMF policies and their implications for political economy, moral hazard and financial instability, is discussed first. Subsequently, an analysis of borrowing costs is undertaken by focusing on the impact of microeconomic loan characteristics and debt-distressed countries’ macroeconomic indicators on loan spreads.
In 2004, international syndicated lending represented more than one-third of new international ca... more In 2004, international syndicated lending represented more than one-third of new international capital market financing, and is deemed to have generated more underwriting revenue in recent years than either the equity or the bond market (Madan, Sobhani and Horowitz, 1999). In particular, leveraged lending has been growing rapidly, as commercial borrowers have increasingly displayed a preference for leveraged borrowing over junk-bond financing (Jones, Lang and Nigro, 2000).1 Specific tranches of such syndicated loans are purchased by non-bank investors. These non-bank tranches are in most cases equivalent to public bonds and subject to an ‘arm’s-length’ relationship in the case of problems (Altman and Suggitt, 2000). This means that banks arranging syndicated credits, especially at the leveraged end of the credit quality spectrum, have de facto been acting as investment banks, collecting fees for putting together syndicates, but not always warehousing the loans themselves, leaving that activity to commercial banks or even non-banks.2 Indeed, in the aftermath of the banks’ reduced lending following the Russian crisis, BIS locational banking statistics show a marked decline after 1995 of banks’ international loan portfolios relative to their total foreign claims including holdings of securities (Figure 5.1).
The determinants of bank lending to developing countries have been investigated in the existing a... more The determinants of bank lending to developing countries have been investigated in the existing academic literature within the risk-return framework, but the conclusions of earlier research have often been only partial or even contradictory. The analysis of a large sample of individual syndicated credit facilities allows the application of the risk-return framework to study the determinants of syndicated lending to developing countries in a more systematic manner. That is the approach taken in this chapter.
Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instrumen... more Syndicated loans are credits granted by a group of banks to a borrower. They are hybrid instruments combining features of relationship lending and publicly traded debt. They allow the sharing of credit risk between various financial institutions without the disclosure and marketing burden that bond issuers face. Syndicated credits are a very significant source of international financing, with signings of international syndicated loan facilities accounting for no less than a third of all international financing, including bond, commercial paper and equity issues (Figure 2.1). This chapter describes the functioning of this increasingly global market, focusing on participants, pricing mechanisms, primary origination and secondary trading.
Excessive borrowing by companies, households or governments lies at the root of almost every econ... more Excessive borrowing by companies, households or governments lies at the root of almost every economic crisis of the past two decades, from Mexico to Japan and from East Asia to Russia. Following the financial crises in Mexico (1995) and South-East Asia (1997, 1998) the determinants of bond and loan financing to developing countries and the pricing of these instruments have been analysed widely in the academic literature (see, for instance, Hernandez and Rudolph, 1995; Eichengreen and Mody, 1997, 1998; Kamin and von Kleist, 1999; Chowdhry and Goyal, 2000). As stressed by Hale (2005), bonds and loans compete in the market for emerging market finance and it is important to gauge the relative importance of each instrument for planning purposes by lenders and borrowers alike. Indeed, while banks can cancel loans relatively easily — posing more potential liquidity threats to emerging market borrowers — bonds are harder to restructure, not least because of the dispersion of the bondholders.
This chapter extends the work of Altunbas, Chakravarty and Kara (2004) and examines the effect of... more This chapter extends the work of Altunbas, Chakravarty and Kara (2004) and examines the effect of the IMF’s imprimatur (seal of approval) on the cost of borrowing in the international syndicated loan markets between 1993 and 2001. It appears that the IMF-assisted countries paid higher spreads over LIBOR for short-term loans and had obtained fewer long-term loan contracts compared to their non-IMF peers for the financing of similar purpose projects. This may indicate a lack of confidence on the part of creditors that IMF prescriptions would have the desired effect in the long run on the economies of the client nations. Also, the pricing of syndicated loans for projects in these countries is inversely related to the level of short-term debt, signalling that creditors perhaps expect a bailout if a financial crisis occurs in the assisted nations. The academic critique of IMF policies and their implications for political economy, moral hazard and financial instability, is discussed first. Subsequently, an analysis of borrowing costs is undertaken by focusing on the impact of microeconomic loan characteristics and debt-distressed countries’ macroeconomic indicators on loan spreads.
In 2004, international syndicated lending represented more than one-third of new international ca... more In 2004, international syndicated lending represented more than one-third of new international capital market financing, and is deemed to have generated more underwriting revenue in recent years than either the equity or the bond market (Madan, Sobhani and Horowitz, 1999). In particular, leveraged lending has been growing rapidly, as commercial borrowers have increasingly displayed a preference for leveraged borrowing over junk-bond financing (Jones, Lang and Nigro, 2000).1 Specific tranches of such syndicated loans are purchased by non-bank investors. These non-bank tranches are in most cases equivalent to public bonds and subject to an ‘arm’s-length’ relationship in the case of problems (Altman and Suggitt, 2000). This means that banks arranging syndicated credits, especially at the leveraged end of the credit quality spectrum, have de facto been acting as investment banks, collecting fees for putting together syndicates, but not always warehousing the loans themselves, leaving that activity to commercial banks or even non-banks.2 Indeed, in the aftermath of the banks’ reduced lending following the Russian crisis, BIS locational banking statistics show a marked decline after 1995 of banks’ international loan portfolios relative to their total foreign claims including holdings of securities (Figure 5.1).
Uploads
Papers by Yener Altunbas